Market Snapshot
| Dow | 44546.08 | -165.35 | (-0.37%) | | Nasdaq | 20026.77 | +81.13 | (0.41%) | | SP 500 | 6114.63 | -0.44 | (-0.01%) | | 10-yr Note | +26/32 | 4.48 |
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| | NYSE | Adv 1532 | Dec 1211 | Vol 988 mln | | Nasdaq | Adv 2338 | Dec 1994 | Vol 8.0 bln |
Industry Watch
| Strong: Energy, Communication Services, Financials, Real Estate, Utilities |
| | Weak: Consumer Staples, Consumer Discretionary, Health Care |
Moving the Market
-- Digesting a big batch of economic data; import/export prices reflecting ongoing inflation pressure, retail sales report reflecting a drop in spending that could translate to lower growth
-- Drop in market rates in response to data
-- Reacting to slate of earnings news
-- S&P 500 getting rejected at all-time high (6128)
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Closing Summary
14-Feb-25 16:30 ET
Dow -165.35 at 44546.08, Nasdaq +81.13 at 20026.77, S&P -0.44 at 6114.63
[BRIEFING.COM] The stock market navigated a mixed landscape today. Early optimism gave way to a more subdued tone that led the S&P 500 to close little changed from yesterday, the Nasdaq Composite to log a 0.4% gain, and the Dow Jones Industrial Average to close 0.4% lower.
Stocks lost initial momentum when the S&P 500 neared its all-time high of 6,128, reaching 6,127 at its best level today. This price action, along with a batch of economic data that stoked concerns about growth, contributed to the lackluster index showing.
The retail sales report for January was noticeably weak and the industrial production report for January showed growth without any help from manufacturing or mining output (i.e., cold weather drove a spike in the output of utilities, which was cranking to meet demand for heat).
In response to the growth concerns, Treasury yields turned sharply lower. The 10-yr yield dropped five basis points to 4.48% and the 2-yr yield dropped five basis points to 4.26%.
There was still a positive bias under the index surface through today's mixed showing. Advancers had a 3-to-2 lead over decliners at the NYSE and a 4-to-3 lead at the Nasdaq.
Outsized moves in the equity market were reserved for names with catalysts. Airbnb (ABNB 161.42, +20.38, +14.5%) and Wynn Resorts (WYNN 88.82, +8.35, +10.4%) turned sharply higher after reporting earnings.
- Dow Jones Industrial Average: +4.7% YTD
- S&P 500: +4.0% YTD
- Nasdaq Composite: +3.7%
- S&P Midcap 400: +2.5% YTD
- Russell 2000: +2.2% YTD
Stocks move lower ahead of the close
14-Feb-25 15:35 ET
Dow -196.22 at 44515.21, Nasdaq +80.15 at 20025.79, S&P +0.61 at 6115.68
[BRIEFING.COM] The major indices moved slightly lower in recent trading.
Treasuries settled the week with modest gains. The 10-yr yield was one basis point lower than last Friday at 4.48% and the 2-yr yield dropped three basis points this week to 4.26%.
As a reminder, markets are closed on Monday for Presidents Day. Looking ahead, participants receive the following economic data on Tuesday: February Empire State Manufacturing (prior -12.6) at 8:30 ET; February NAHB Housing Market Index (prior 47) at 10:00 ET; and December Net Long-Term TIC Flows (prior $79.0 bln) at 16:00 ET.
Treasury yields move up after initial data-related decline
14-Feb-25 15:05 ET
Dow -122.56 at 44588.87, Nasdaq +53.45 at 19999.09, S&P +1.74 at 6116.81
[BRIEFING.COM] The market moved mostly sideways at the index level over the last half hour.
Treasury yields moved up slightly as the session progressed. The 10-yr yield dropped to 4.45% from 4.53% in response to this morning's data, but sits at 4.48% now.
The 2-yr yield moved to 4.24% from 4.30% and sits at 4.26% now.
TSM moves up after INTC news
14-Feb-25 14:30 ET
Dow -117.48 at 44593.95, Nasdaq +50.46 at 19996.10, S&P +1.61 at 6116.68
[BRIEFING.COM] The Nasdaq Composite sits on a 2.4% gain this week.
Taiwan Semiconductor Manufacturing (TSM 203.66, +1.83, +1.1%) moved higher following a report that it's mulling taking a controlling stake in Intel (INTC 23.27, -0.85, -3.6%) factories following a request from the Trump administration, according to Bloomberg.
The PHLX Semiconductor Index (SOX) trades fractionally below its prior close.
ABNB, WYNN outperform after earnings
14-Feb-25 14:05 ET
Dow -79.63 at 44631.80, Nasdaq +58.45 at 20004.09, S&P +6.18 at 6121.25
[BRIEFING.COM] The S&P 500 is trending back toward its all-time high, trading about seven points higher than yesterday.
Upside moves in many stocks are limited, leading the equal-weighted S&P 500 to trade 0.2% higher.
Outsized moves in the equity market are reserved for names with catalysts. Airbnb (ABNB 160.61, +19.57, +13.9%) and Wynn Resorts (WYNN 89.32, +8.85, +11.0%) are sharply higher after reporting earnings.
TreeHouse Foods provides a tasty snack for investors following big EPS beat (THS)
TreeHouse Foods (THS +4%) is trading nicely higher today after reporting a huge EPS beat. In fact, this major supplier of private label food and beverages reported its largest EPS upside since 1Q23. Revenue dipped 0.5% yr/yr to $905.7 mln, which was in-line, maybe a bit light. The Q1 and FY25 guidance were below analyst expectations.
- THS wrapped up what was a challenging year in 2024. The company had to navigate a slower macro environment and two significant supply chain issues in 2024. The good news is that THS has made steady progress executing on its supply chain improvements despite a difficult consumer backdrop across food and beverage categories.
- Digging into the Q4 results a bit, sales were nearly flat as volume/mix was positively impacted by strong performance in multiple categories including pretzels, in-store bakery, and cookies. However, this was offset by lost volume from the griddle product facility restoration following a recall. Additionally, commodity-driven pricing adjustments in select categories contributed to the decrease.
- Notably, THS says it is focusing more on a more profitable business, including making decisions based on margin management with a goal of prioritizing gross profit dollars. THS is also focused on additional efficiency across its operations. That, coupled with declining levels of capex, should drive improved profitability and cash flow. That appears evident in its Q4 results with a big EPS beat despite a slight miss on revs. That tells us margins were better than expected.
- In terms of the guidance, THS explained that private brand unit sales experienced a rather sharp deceleration during Q4 due to continued macro pressure. THS is experiencing similar trends thus far in Q1.
- Despite the macro trends, THS says the overall private label industry dynamics remain favorable. Price gaps are healthy and they maintained their historical cadence during the holiday period despite weaker consumption. Looking ahead, THS believes an increase in promotional activity is likely given industry volume, softness and overall consumption patterns.
- Bigger picture, THS said on the call that it's clear that many grocery retailers see further runway for growth in private brands and are making investments accordingly. For example, Walmart (bettergoods) and Albertsons (Overjoyed) both launched new private label brands in 2024. Costco's Kirkland brand is well-established, and Aldi continues its store base expansion across the US with an assortment that is focused almost exclusively on private brands.
Overall, we view Q4 as a mixed quarter with strong EPS upside but weak guidance. We are a bit surprised to see the stock up so much. However, we think the big EPS upside really shows that THS is making progress on being more profitable. Also, THS was fairly positive on the private label industry going forward. And there has been a lot of negativity already priced into the stock given its recent struggles, so investors are seeing Q4 as a buying opportunity.
Palo Alto Networks heads lower despite decent JanQ upside; metrics guidance may be why (PANW)
Palo Alto Networks (PANW -5%) is trading lower despite reporting EPS and revenue upside with its Q2 (Jan) report last night. The cybersecurity giant posted solid EPS beat with its typical upside (split adjusted). Revenue rose 14.3% yr/yr to $2.26 bln, which just a bit better than expected. Guidance was decent with an in-line outlook for Q3 (Apr) and upside EPS for the full year. Growth was pretty broad across the entire portfolio, with strength across all three geographies and platforms.
- Within revenue, product revenue grew 8%, while total services revenue grew 16%. PANW noted that product revenue is now approaching 40% software on a trailing 12-month basis. PANW expects healthy software contribution to product revenue in the second half of this year, which should increase product revenue into the double-digit growth range. PANW also saw stable demand for firewall appliances in Q2, which it expects will continue throughout FY25.
- PANW saw double-digit revenue growth across all geographies, which was encouraging, with the Americas growing 13%, EMEA up 18% and JPAC growing 17%. PANW was particularly encouraged by the volume of large deals it closed with some notable large deals in EMEA and JPAC. In fact, PANW signed its largest deals ever in both EMEA and JPAC this quarter, each in excess of $50 mln. PANW believes these deals demonstrate the broadening of its large deal success in North America to its international markets.
- Metrics are important for PANW. The company no longer provides billings data because it's too volatile and is not really representative of the business. Instead it uses Next-Generation Security (NGS) ARR, which grew 37% yr/yr in Q2 to $4.8 bln, which was above the $4.70-4.75 bln prior guidance. RPO is another key metric, it grew 21% yr/yr to $13.0 bln vs $12.9-13.0 bln prior guidance.
- Given all the government downsizing, PANW addressed concerns about how it might be impacted. PANW saw stable federal business in Q2. Much of its federal business is tied to renewals and existing programs with long-standing funding.
- PANW noted that companies are racing to evaluate, experiment and deploy AI. As they do so, they are discovering that some of their legacy architectures are standing in the way of their aspirations. This is resulting in a resurgence of cloud transformation projects, and consequently, demand for network security and network transformation. In other words, the cloud is becoming an integral part of the enterprise, and the same level of security must be delivered.
Overall, this was a good, solid report for PANW. We were a bit nervous about their Asian business and possible FX headwinds. However, Q2 growth was pretty broad across the entire portfolio, with strength across all three geographies and platforms, including some large international deals. In terms of why the stock is lower, we think investors might be disappointed the company only reaffirmed its FY25 NGS ARR and RPO guidance despite Q2 upside on the former and high end on the latter. It may also be some profit taking given the 20% move in the stock since early January.
Airbnb springboards to nine-month highs on accelerating bookings growth in Q4 (ABNB)
Airbnb (ABNB +15%) springboards to nine-month highs today, breaking out of its lengthy sideways trend following sizeable top and bottom-line beats in Q4. ABNB's impressive performance in the quarter mirrors what we saw from Expedia Group (EXPE) last week, which benefited considerably from a better-than-expected travel demand environment.
While ABNB, known for its alternative accommodations platform, projected Q1 revenue below consensus, a significant chunk of its growth was sliced by FX headwinds, making the mild guidance more palatable. Meanwhile, ABNB expects bookings growth to remain relatively stable compared to the year-ago period in Q1, keeping a tight grip on the upward momentum it has enjoyed throughout Q4.
- Nights and Experiences Booked (bookings) grew 12% yr/yr in Q4, a 4 pt acceleration from Q3, consistent with ABNB's remarks in November that it was observing strong demand trends in Q4 across all markets and lead times. Speaking of lead times, ABNB dealt with this headwind last year as travelers hesitated to immediately toss high dollar amounts on trips. However, CFO Ellie Mertz commented that the shrinking lead times proved temporary, supporting strong bookings growth in Q4.
- Following back-to-back quarters of missing earnings estimates, ABNB reversed course in Q4, posting a double-digit beat. Pressuring earnings lately has been a combination of soft bookings growth and overseas expansion. As bookings accelerate, profitability is being largely pressured by ABNB's plans to spend $200-250 mln on underpenetrated overseas markets in 2025. However, despite its investments, ABNB is still targeting adjusted EBITDA margins of at least 34.5% in FY25, a reasonable 150 bp decline yr/yr.
- Another investment area for ABNB is its app. CEO Brian Chesky mentioned during the call that he wants the app to resemble Amazon in that it is the sole destination for consumers' traveling and living needs. Essentially, ABNB wants to move beyond its core, where its platform is used only to discover a place to stay. Mr. Chesky noted that, like Amazon, it started with a core offering and moved adjacent to it. For ABNBN, this would involve other experiences and services that can make a traveler's stay more special. From there, ABNB plans to branch out.
- In the near term, ABNB expects revs to grow +4-6% yr/yr in Q1, representing $2.23-2.27 bln. If it were not for FX headwinds and calendar factors, ABNB estimates Q1 sales growth of +10-12%. Bookings are anticipated to be relatively stable compared to 1Q24, translating to around 9.5% growth yr/yr.
After a tumultuous 2024, the year ahead is shaping up to be a comeback year for ABNB. Its overseas expansion plans will fortify its global presence, providing a tailwind to its global growth rates over the long run. Meanwhile, its vision surrounding its app is ambitious, potentially paving the way for a significant uptick in usage. Consumers in the U.S. and across many of ABNB's core markets have firmly demonstrated their unwillingness to give up traveling despite uncertain macroeconomic conditions. ABNB is pouncing on this opportunity, cementing its base for when economic conditions rebound more meaningfully.
Dutch Bros is perking up nicely following robust Q4 earnings; new CEO had a great first year (BROS)
- Dutch Bros (BROS +27%) is surging to a new 52-week high following its Q4 report last night. After gapping lower following its Q2 report in August, this West-Coast coffee chain has reported back-to-back huge quarters in Q3-Q4. Beyond just the headline numbers, what also stood out was its system same shop comp at +6.9% (+9.5% for company-operated shops), a notable improvement from Q3's +2.7% (+4.0%) and Q2's +4.1% (+5.2%).
- Relative to its competitors, BROS believes it is uniquely positioned and on trend, with an emphasis on iced beverages, personalization, and speed. BROS sees an increasing relevance of the customized energy occasion, which has been core to its menu for over a decade. BROS believes that menu innovation and staying ahead of trends, especially in the competitive beverage industry, is critical.
- In Q4, BROS returned some successful LTO offerings, Candy Cane and Hazelnut Truffle Mocha, and added Jingle Nog and Winter Shimmer Rebel as seasonal offerings. Furthermore, BROS used promotional innovation to surprise customers with giveaways like the passenger princess straw topper and its custom holiday ornament. These were huge hits with customers and these kinds of things strengthen brand loyalty.
- Of note, BROS has increased its advertising budget and it's paying off. BROS has seen considerable improvements to both brand awareness and traffic. Also, its loyalty program, known as Dutch Rewards, is gaining traction with a record 71% of transactions coming from Dutch Rewards members.
- Overall, 2H24 showed a noticeable acceleration in results even as other coffee chains have struggled. We have to tip our cap to the new CEO, she had a great first year at the helm. CEO Christine Barone took over on January 1, 2024. In a bit of irony, she is a former Starbucks (SBUX) executive. Her timing in terms of moving from SBUX to BROS was pitch perfect as the former struggles and the latter succeeds. It is clear that she has been making the right changes to turn Dutch Bros around.
Datadog tops Q4 estimates but pulls back amid weak FY25 guidance (DDOG)
Datadog (DDOG -8%) fetches a lower price today after its FY25 guidance misses the mark. The SaaS company, allowing clients to monitor their IT infrastructure, tends to already guide somewhat conservatively, basing its forecasts on trends observed in recent months and then applying conservatism to these growth trends. As such, FY25 earnings and sales projections, predicting $1.65-1.70 and $3.175-3.195 bln, respectively, both below consensus, are fueling a significant pullback today.
- While guidance was disappointing, most of DDOG's Q4 report was uplifting. The company topped earnings and sales estimates again in the quarter, a recurring theme, delivering adjusted EPS of $0.49 and revs of $737.73 mln, a 25.1% jump yr/yr, consistent with the past six quarters.
- Usage growth from existing customers mirrored what DDOG noticed in the year-ago period, starting strong and slowing down toward the end of December. Management remarked that the business environment remained stable. Enterprise customers continued to underpin usage growth, exhibiting outsized strength, while growth remained stable across small and medium-sized businesses (SMBs), posting a slight yr/yr uptick compared to Q3.
- Customer growth was strong. DDOG added 800 net customers in Q4, pushing its total to around 30,000. Customers with annualized recurring revenue (ARR) of $1 mln or more jumped by 17% yr/yr to 462, and those with ARR of $100K or more increased by 13% to 3,190. Notably, DDOG posted the highest number of new logo annualized bookings since 2023.
- Also robust was the contribution from AI-native customers, which represented around 6% of Q4 ARR, around the same as last quarter but up 3 pts from the year-ago period. DDOG mentioned in Q3 that AI-native customers are ramping rapidly, potentially leading to increased commitments over time with better terms. While a positive long-term development, DDOG warned that this could create near-term revenue volatility. Management noted today that growth from this cohort was largely stable from last quarter, keeping this development in play.
- Furthermore, on AI, a trend that unfolded during this earnings season was that three major hyperscalers, including Amazon (AMZN), Microsoft (MSFT), and Google (GOOG), missed their Q4 cloud revenue forecast. These tech giants touched on capacity constraints on the AI side of their businesses but noticed a normal pattern of cloud migrations on the non-AI side. DDOG mentioned that it is growing faster than cloud providers, even though they show signs of slowing. Management added that it continues to expect outperformance due to broad-based cloud transformations.
DDOG's Q4 report was mostly positive. However, for a company trading at a pricey 71x forward earnings multiple ahead of its Q4 report, its weak guidance was sufficient to ignite meaningful selling pressure today. That said, DDOG remains a leader in the IT observability market. While an uptick in AI-native customers creates near-term headwinds, it should ultimately form a sturdier base for longer-term growth.
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